If you have bad credit, you may still be able to get a debt consolidation loan. Online lenders are a great option for those with less than perfect credit, as they often have more lenient eligibility criteria than traditional banks. However, it's important to pay attention to the terms of the loan, as interest rates and fees can be high. It's possible to qualify for a debt consolidation loan with bad credit (a score lower than 670).
However, the interest rates and fees may be higher than those offered to borrowers with better credit. Additionally, some lenders may not be willing to work with borrowers who have bad credit. Fortunately, there are some lenders that could work with you even if your credit is damaged. Online lenders can offer debt consolidation loans with more lenient credit scoring requirements.
However, bad credit debt consolidation loans tend to have higher interest rates and sometimes fees to offset the additional risk. If the interest rate you qualify for isn't low enough, debt consolidation may not save you money. The approval of a debt consolidation loan has a similar duration to that of any other personal loan. Some lenders, especially online lenders, offer same-day financing, but it can take a couple of days for your bank to process the deposit. Most lenders take a few days to a week to make a loan decision, plus a few additional days to disburse their funds if they approve. Even a small increase in your credit score can increase your chances of qualifying for a debt consolidation loan.
Going from a bad credit score to a fair one (630 to 680) could also lead to a more affordable loan with a lower interest rate. Another tip is to pay off any small debt. This reduces credit utilization, which represents 30% of your credit rating and can also improve your overall debt-to-income ratio. Federal credit unions limit annual percentage rates on personal loans to 18%. Upgrade is one of the best online lenders for a bad credit loan.
If you take out a debt consolidation loan and have Upgrade send the funds directly to your creditors, you may qualify for an additional interest rate discount of 1 to 5 percentage points. Compare that to the 25%-30% you pay on your credit cards and the 10%-18% you pay on a debt consolidation loan. And while LendingClub doesn't offer the fastest funding time, it will pay your creditors directly so you don't have to worry about the logistics of debt consolidation. If you have additional funds left over, you can also use them to pay off other debts you didn't consolidate to help lower your DTI ratio. Check the APR before you apply if the lender offers this option and consider origination fees to determine if a debt consolidation loan will save you money. These features make it easy to consolidate a large amount of debt, while spreading payments over an extended period and reducing monthly payments. Credit unions are another resource to consider if you want to consolidate debts with a poor credit rating. Unfortunately, qualifying for a debt consolidation loan with less than ideal credit (a score of 669 or lower) can be a challenge.
Each lender sets their own guidelines when it comes to minimum credit rating requirements for debt consolidation loans. This means that LendingClub may be a less flexible debt consolidation option, especially if you can qualify for better rates elsewhere. When you consolidate at a lower interest rate, you can pay off your debts faster if you apply the savings to your remaining balance. OneMain Financial is an ideal choice for consumers with credit problems who are having trouble getting approved for a debt consolidation loan elsewhere. If bad credit disqualifies you from getting a loan, there are debt consolidation alternatives that can improve your standing. A debt consolidation loan is a type of personal loan that can combine several existing debts into a single account. While taking out a debt consolidation loan will temporarily lower some points on your credit score, the overall effect should be positive as you begin to pay off debts. If you're drowning in debt and the alternatives listed above are prohibited, credit counseling, debt settlement, and bankruptcy may be your only option for getting some relief.
